McLeod Law Offices

Tomorrow (February 26) the House will vote on HR 1106, a housing package that includes the judicial modification provision of HR 200. That provision would let homeowners turn to the bankruptcy courts to allow them to modify the mortgages securing their principal residence. Currently, bankruptcy provides no remedy for homeowners who are trying to save their home from foreclosure.

While there are a number of complicated issues affecting our economy, the housing crisis continues to devolve.  The Washington Times reports that there is no relief in sight from foreclosures and the falling home values that help fueling it.  We can encourage Congress to do nothing, while the economy continues a downward spiral. Or we can tell them to pass this bill and give homeowners the chance they deserve in bankruptcy.

House approval is not guaranteed. The American Banks Association and the Financial Services Roundtable have sent letters to house leaders urging that the bankruptcy modification provisions be removed from the “Helping Families Save Their Homes Act of 2009.”  The “buzz” I am hearing is that the lender lobbyists are showing up in “packs” in Member offices urging opposition to the judicial loan modification proposals.  “Packs.”  What the hell are they so scared of that they have to travel in packs?  According to a report from CNN, two-thirds of mortgage servicers have agreed to the foreclosure mitigation plan outlined by the Secretary of the Treasury.

[T]he prospect of a law amending the bankruptcy code to allow judges to dictate new terms on mortgages in the event of an individual filing bankruptcy, was also likely a significant factor in the companies’ willingness to cooperate with the administration’s plans.

The House is working on legislation which would be aimed at helping people in bankruptcy to hang on to their primary residences. It could see bankruptcy judges compelling mortgage-servicing companies to accept new terms on an individual’s mortgage.

Other than Citigroup, other large banks remain opposed to the bankruptcy-law change, arguing that it would lead to borrowers to seek bankruptcy at the first sign of trouble, rather than consider other options that might be more costly.

I don’t buy that – mainly because when I meet with clients, they are the first to tell me that filing bankruptcy is the last thing they wanted to do.   So to the lenders and their servicers, I say this: if the remaining one-third of you do not want bankruptcy judges modifying their loans, modify the loans so that the homeowner doesn’t have to file bankruptcy.  And for those two-thirds who have expressed a willingness to modify the loans, do it.  Let’s cut the crap and just do it.

Will it increase bankruptcy filings?  The Congressional Budget Office says yes.  But they also say that more than 1 million homeowners facing foreclosure could benefit from this legislation.  I view that as 1 million less people who will lose their home if this bill fails.  These people are our neighbors, our friends and our colleagues.

So what can you do?  Contact your member of Congress by phone or fax.

Email your friends and family.  Ask them to contact their congressional representative by phone or fax.

What do you tell them?  Try something like this:

We cannot end the financial crisis without stemming the rising tide of foreclosures. Court-supervised loan modification is an essential component of an effective and comprehensive plan to meet that challenge.  And unlike every other solution being considered in Washington, it comes at no cost to U.S. taxpayers.

If we are successful tomorrow, we move over to the Senate.  If we are not, that is it.  No second chance.  So please don’t wait.  Support HR 1106.

And if you do not support it, I’ll remember.  I’ll remember it when my friend loses her home because she lost her job.  I’ll remember it when my house value plummets because the home next door is vacant and abandoned because the previous owner could not afford the payments.  I’ll remember it on election day.

Ok, so maybe that last bit is a little over the top, but you get my point.  It really is now or never.  And Congress really needs to know this now.

For more thoughts, check out Real Clear Politics:  Let Bankruptcy Courts Change Mortgages

Previous posts on the subject:

The President’s “Plan”

Mortgage Modification Legislation Update: Citigroup Supports the Bill

Keep the Bankruptcy Option On the Table

Changing Chapter 13: Some Facts on the Pandora’s Box

Mortgage Modification Update: Not So Hopeful